Penalty survives where confiscation is upheld, but pre-deposit becomes refundable once the appeal succeeds.

Penalty remained sustainable in rectification proceedings because the final order, while setting aside the duty demand, also upheld confiscation of the goods; the request to delete the penalty was therefore rejected. A pre-deposit made for hearing the appeal became refundable once the appeal was decided in favour of the assessee, and refund was directed. The rectification application thus failed on the penalty issue, while the refund claim succeeded, resulting in a partly allowed outcome.

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Issues: (i) Whether the penalty sustained in the final order could be deleted in rectification proceedings on the ground that the duty demand had been set aside. (ii) Whether the amount deposited as pre-deposit for hearing the appeal was refundable after the appeal had been decided in favour of the assessee.

Issue (i): Whether the penalty sustained in the final order could be deleted in rectification proceedings on the ground that the duty demand had been set aside.

Analysis: The final order had not only set aside the duty demand but had also upheld confiscation of the goods. In view of the confiscation, the case was held to be distinguishable from the cited precedent, and the penalty was treated as legally sustainable.

Conclusion: The request to rectify the order by deleting the penalty was rejected.

Issue (ii): Whether the amount deposited as pre-deposit for hearing the appeal was refundable after the appeal had been decided in favour of the assessee.

Analysis: The appeal having been decided in favour of the assessee, the amount deposited as pre-deposit was held to have become refundable, and no reason was found to withhold refund.

Conclusion: Refund of the pre-deposit amount was directed.

Final Conclusion: The rectification application failed, while the application for refund of the pre-deposit succeeded, resulting in a partly allowed order.

Ratio Decidendi: Where confiscation of goods is upheld, penalty may remain sustainable notwithstanding setting aside of duty demand, and a pre-deposit becomes refundable once the appeal is decided in favour of the assessee.

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